Module 8
Commercial Dispute Resolution
within Australia
Summer 2011-12
©MNoonan2012
This presentation and Copyright therein is the
property of Maureen Noonan and is prepared
for the benefit of students enrolled in the
Commercial Transactions course conducted by
the Law Extension Committee and is available
for their individual study. Any other use or
reproduction, including reproduction by those
students for sale without consent is prohibited.
©MNoonan2012
Is this topic examinable?
Yes, either
--by a short direct question on this topic in Q6 of
the exam. The appropriate answer would be
descriptive.
Or
--as one part of a problem question..e.g. how
would ADR have been useful in this situation?
Or
--as the whole subject of a problem question if
Semester Focus
©MNoonan2012
Disputes
Valuable things at risk, such as:
• Time
• Money for expenses incurred trying to resolve
dispute, lost earnings
• Business relationship and future earnings
• Loss of market to competition
• Loss of reputation
• Freedom if a criminal offence and dispute is with
authorities/society.
• Political issues between states and countries
©MNoonan2012
Methods of dispute resolution
Prevent the dispute by risk management
Avoid some disputes by drafting contracts well
Negotiation
Capitulation
Mediation and conciliation
Expert determination
Arbitration
Litigation
Other: e.g. Toss a coin, force etc
©MNoonan2012
Role of the lawyer
Policy and community attitudes to cost etc of
traditional dispute resolution
Courts overworked and congested
Repositioning of a narrow profession
Opportunities to use diverse skills instead of
purely “legal” skills
Important to choose most appropriate
method for particular issue/dispute
©MNoonan2012
Role of the lawyer
• Establish dispute resolution function for an
organisation.
• Risk management especially in larger
companies.
• As a professional mediator, arbitrator.
• Management of international arbitrations for
exporters/importers/multinationals.
• Role in international organisations.
• Often a compulsory first step to litigation
• Advising clients of alternatives for resolution
©MNoonan2012
Risk Management
Identify legal risk
Apply
Management
Technique
Monitor risk
Identify Appropriate
Management Technique
for each risk
and plan
for overall management
©MNoonan2012
Legal role in Risk Management
• Objective is to avoid dispute or minimise
damage resulting from a dispute
• Must understand business
• Conduct due diligence to ascertain main
areas where dispute/legal liability likely to
arise
• Appreciate bargaining position and
opportunities/limitations
©MNoonan2012
Some Exporter Legal Risks
Customer does not pay-unpaid seller
Unable to recover /enforce rights in foreign country
Product liability-wrong item, quality, quantity,
unsafe, late, incomplete
Unable to produce/acquire-breach contract
Loss in transit-who bears loss?
Competition cheaper-buyer defaults so they can
take advantage of cheaper opportunity
©MNoonan2012
Some importer legal risks
Goods or services inappropriate, not what was
ordered-claim for compensation available?
Supply does not meet local standards/laws
Crime –bribing foreign officials
Tax, customs issues
Unfamiliar with particular free trade treaty
provisions
Unable to enforce rights /recover money in a
foreign country
Unable to sell items purchased
Vulnerability to local customers for problems
©MNoonan2012
Some manufacturing risks
Raw material problems
Machinery
Finance
Delivery
Quality/quantity issues
Damage to others
Failure to sell products
Title issues
©MNoonan2012
Alternative dispute Resolution (ADR)
Defined by ADRA (Australian Dispute Resolution
Association Inc.) as:
Dispute resolution by processes which encourage
disputants to reach their own solution and in
which the primary role of the third party neutral is
to facilitate the disputants to do so.
Generally includes negotiation, independent expert
appraisal and mediation, but not arbitration;
which is an adjudicative process where the
parties agree that the decision of the third party
is binding.
©MNoonan2012
ADR
Old story to illustrate:
2 people argue over an orange. One wants
the juice and the other the peel. If they go
to court, only one party can “win” and get
the orange, but if ADR used, tailored “winwin” solution possible.
©MNoonan2012
Problems with court litigation
• Cost
• The time it takes
• Exposure of confidential information or
embarrassing deficiencies for an organisation.
• Result may be of little use to either party
• Expertise may be required to understand e.g. IT
performance, functionality, system defects,
project management issues
• Loss of important, even dependent relationships
©MNoonan2012
The courts and ADR- resources.
Protracted disputes tie up a lot of time and resources. In
State of Tasmania v. Leighton Contractors Pty Ltd (20044 decisions), Tasmania sued Leighton under a liquidated
damages clause for delay in a contract for a road. L
claimed the delay was due to them insisting on a
significant change, not in the contract. Longest civil trial
in Tasmania with 3 years of preparation, armies of
lawyers and 6 months preparation time. L won, but Tas
appealed everything and no decision on quantum. New
CJ made it clear he could not let litigants tie up the
judicial resources of Tasmania and insisted on further
mediation (despite the fact that 2 previous mediations
had failed). It worked and most issues settled or agreed
and final point of appeal was heard in one day.
©MNoonan2012
Court litigation now
Emphasis on resolution of dispute
ADR a precondition to commencing litigation
Lawyer therefore needs skills to advise
clients on alternatives, participate, discuss,
recommend.
Can be consequences if they do not…in
costs orders
©MNoonan2012
Commonwealth
• Cth Civil Dispute Resolution Act…received assent April
2011.
• Purpose is to seek to resolve disputes at the most
appropriate level-earliest opportunity and where
possible, outside the courts and the stressful, expensive
and adversarial culture of litigation.
• An applicant, when filing a Federal Court (& Fed
Magistrate) matter will also have to file a statement
outlining the “genuine steps” they have taken to attempt
to resolve the dispute.
• See Second Reading Speech of Robert McClelland 16
June 2010, House of Representatives Federal
Parliament and Bill itself.
©MNoonan2012
Civil Dispute Resolution Act 2011
April 2011
Section 3.
The object of this Act is to ensure
that, as far as possible, people take
genuine steps to resolve disputes
before certain civil proceedings are
instituted.
©MNoonan2012
Civil Dispute Resolution Act (Cth)
What are “genuine steps”? Examples s.4
a) Notifying the other person of the issues…offering to
discuss them, with a view to resolving the dispute.
b) Responding appropriately to any such notification.
c) Providing relevant information and documents to enable
the other person to understand the issues involved and
how the dispute might be resolved.
d) Considering whether process facilitated by another
person could help, including ADR.
e) If such process agreed, agreeing on person and
attending
f) If process conducted but unsuccessful, considering a
different method.
g) Attempting to negotiate.
©MNoonan2012
NSW
Note that implementation of NSW Act has
been delayed…
to see how Commonwealth requirements
work?
Too hard to implement?
©MNoonan2012
NSW Civil Procedure Act
s.56
• Overriding purpose of just, quick and cheap resolution
of real issues in dispute or proceedings.
• Court must seek to give effect to overriding purpose.
• A party to civil proceedings is under a duty to assist the
court to further the overriding purpose
• Party to civil dispute (one that may lead to civil
proceedings) or civil proceedings is under a duty to take
reasonable steps to resolve or narrow the issues in
dispute in a way consistent with overriding purpose.
• Persons must not cause a party to be put in breach of
a duty…solicitors, barristers, any person with relevant
interest (gives assistance or exercises direct or indirect
control or influence over the conduct of proceedings or a
party).
©MNoonan2012
NSW Civil Procedure Act
s.18A Interpretation
ADR means processes (other than a judicial
determination) in which an impartial person
assists persons in dispute to resolve or narrow
the issues in dispute, including, but not limited
to, the following:
Mediation
Expert determination
Early neutral evaluation
Conciliation
Arbitration
©MNoonan2012
NSW Civil Procedure Act
s.18C
Pre litigation protocols (setting out steps that
constitute reasonable steps for pre
litigation requirements) may cover
appropriate notification and
communication steps, appropriate
responses and correspondence,
information, negotiation and ADR options
and procedures…regulations and rules.
©MNoonan2012
NSW Civil Procedure Act
s.18F
Protection and use of information and
documents disclosed under pre-litigation
requirements…subject to an obligation not
to use them or permit them to be used for
another purpose.
Note that this is an issue for people…soft
sanction only
©MNoonan2012
NSW Civil Procedure Act
s.18J
Duty of legal practitioners to:
Inform client about pre litigation
requirements to dispute including need to
file a dispute resolution statement
Advise client about alternatives, including
ADR
Sanction can be costs order against them if
they do not comply.
©MNoonan2012
NSW Civil Procedure Act
s.18G
Plaintiff has to file a dispute resolution
statement with originating process and
serve it on Defendant.
Statement must cover the steps taken to try
to resolve or narrow issues in dispute or
reasons why no such steps were taken
(e.g. urgency of proceedings, safety or
security of any person or property).
©MNoonan2012
NSW Civil Procedure Act
s.18H
Defendant has to reply to Plaintiff dispute
resolution statement.
Must state whether it agrees with it
Or, disagrees, giving reasons and specifying
reasonable steps defendant believes
would usefully be undertaken to resolve
dispute.
©MNoonan2012
Reasonable steps Checklist
*taken from Lancken & Rohr Law Society Journal article Feb 2011
1. Check whether pre litigation requirements apply to
particular dispute.
2. Advise clients of pre litigation requirements, duties
associated with purpose of Act and alternatives to
litigation.
3. Advise clients of consequences of failure to comply.
4. Consider and take reasonable steps e.g. exchange
information and documents, offer to negotiate, proose
and attend ADR
5. If litigation does commence, file dispute resolution
statement.
©MNoonan2012
Plaintiff Statement
*taken from Lancken & Rohr Law Society Journal article Feb 2011
1. Plaintiff claims an account of profits under a partnership.
2. The amount in dispute is $100,000
3. Attached and marked A is a letter sent to the D on 19 May,
2011 seeking an accounting of profits with an outline of why
P is entitled, with copies of supporting documentation.
4. Attached and marked B is a letter dated 10 June 2011
seeking a without prejudice meeting with the P, her expert
accountants, lawyer and representatives of D.
5. On 22 June, 2011 D requested P attend mediation.
6. P declined to participate in mediation as she wished to have
a without prejudice meeting before incurring costs of
mediation.
7. P made an offer of settlement on 1 July 2011. Offer made
without prejudice “except in regard to costs” and will be
relied on in relation to costs should proceedings be
determined by a court.
©MNoonan2012
Defendant Statement
*taken from Lancken & Rohr Law Society Journal article Feb 2011
The Defendant agrees with the chronology of events set
out in the P Dispute Resolution Statement dated 1
August 2011 with the following additions:
1. D says relationship was not partnership but that P was
Agent of D and has been paid all monies due.
2. D sent a letter to P on 22 June 2011 that set out
reasons for agency with copies of supporting
documents.
3. D would like to attend a mediation conducted by a
mediator from Law Society of NSW Panel and remains
willing to do so if P consents.
Dated 28 August, 2011.
©MNoonan2012
ADRA
www.adra.net.au
Formed 1987 with objectives:
• To promote and encourage ADR in Australia
• To encourage exchange of ideas and information re ADR
• Providing and supporting education, research
• Printing, publishing and circulating ADR info
• Enhancing professional skills of ADR practitioners
• Represent ADRA members
• Cooperate with others to achieve objectives
©MNoonan2012
Early dispute Resolution (EDR)
Reference: Law Society Task Force Report on
Early Dispute Resolution and Law Society
Dispute Resolution Committee.
EDR is concept and process of intervention in the
formal dispute process to resolve that dispute
early, effectively and legitimately
To enable EDR, need for changes in attitude by
profession, clients, the litigation process and an
increase in ADR initiatives
Complexity and inefficiency of legal system in part
due to Commonwealth/State division
©MNoonan2012
Institutionalised EDR / ADR
The Administrative Decisions Tribunal NSW (ADT)
See Judge Kevin O’Connor AM, President ADT, address to ADRA Conference 2007 on ADRA website: Institutionalised
Dispute Resolution
ADT deals with state tax appeals, FOI merit reviews, professional discipline of legal profession and others, retail leases.
Chapter 6 of Administrative Decisions Tribunal Act 1997 empowers Tribunal to
engage in 2 forms of ADR-mediation and neutral evaluation and Tribunal can
determine its own procedures. It can engage assessors, conduct preliminary
conferences and can dispense with hearing and determine matter on the
papers.
Mediation means a structured negotiation process in which mediator as neutral
and independent party assists parties to achieve their own resolution. It is
voluntary and mediators are encouraged to adopt uniform practice.
Neutral evaluation means a process in which neutral evaluator seeks to
identify and reduce the issues of fact and law in dispute. The role includes
assessing relative strengths and weaknesses of each party’s case and offering
an opinion as to the likely outcome of proceedings.
Assessors can be very helpful where special knowledge or experience is
required e.g. veterinary surgical techniques
Not always appropriate? e.g. occupational licensing, professional discipline
and tax appeals. Once a public decision has been made e.g. to suspend a
licence Judge O’Connor is of the view the process should remain public and
open.
©MNoonan2012
Industry based dispute resolution
Financial Services Ombudsman
Telecommunications Industry
Ombudsman
Energy and Water Ombudsman NSW
Superannuation Complaints Ltd
Law Society of NSW
Arts Law facilities for members
©MNoonan2012
Domestic ADR
The Australian Commercial Dispute Centre Ltd
formed in 1986 by AG and Sir Laurence Street.
Established to introduce and encourage non
adversarial dispute resolution into Australia.
Works with ACICA and 2003 Memorandum of
Understanding means ACICA focuses on
international disputes and ACDC on domestic
disputes and mediation.
Compulsory mediation has been introduced into
many disputes in the regular court system.
©MNoonan2012
Negotiation
Win/win mentality means both parties must
come out of the negotiation with an
improvement in their situation. Skill lies in
formulating such an outcome.
Win/loss means that one side is better off
and one worse off. May resolve immediate
dispute, but might lead to loss of
relationship, or retaliation later.
©MNoonan2012
Win/win examples
Deliver later at higher price…buyer gets
timing required and vendor is
compensated for storage/delay of receipt
Pay earlier at cheaper price
Long term contract in return for fixed price
Return unsold items in return for prime
display position
©MNoonan2012
The Negotiation process
• Prepare-Formulate desired outcome, research
possible solutions
• Choose diplomatic/respectful language
• Refrain from adversarial, bullying language.
• Consider position of the other side and any
cultural issues relevant such as importance of
saving face
• Avoid insults, name calling, emotional abuse
• Meet personally on “without prejudice” basis-at
lower level first / higher level first, neutral ground
• Exchange of emails, telephone, correspondence
©MNoonan2012
Capitulation
Sometimes there is no better alternative
e.g. in the wrong
No gain/point in spending time/money
No chance of success
Better use for resources
Best to preserve relationship for now and do
something about it later.
©MNoonan2012
MEDIATION
Useful reference: Hardy and Rundle,
Mediation for Lawyers, CCH 2010
(Checklists used in these notes), Law
Society NSW mediation kit.
©MNoonan2012
Mediation
A third party facilitates resolution of a
dispute by the parties.
Third party does not decide. Parties do.
©MNoonan2012
Mediation
• Parties appoint a person who assists them
to reach a negotiated resolution.
• Often a person with skills to work out
win/win solution to particular issue
• Puts someone in between warring parties
and can dilute poisonous atmosphere to
enable productive consideration of issues
• Not binding on parties unless reflected in a
formal settlement agreement
©MNoonan2012
Mediation-is it appropriate?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Does client want to resolve the matter?
Intellectual mental or emotional capacity to pursue an agreement?
Does client want to create a legal precedent?
Does client have capacity and willingness to pay legal costs of litigation?
Does client suspect other party is hiding information, lying or otherwise acting in bad
faith?
Does client trust that other party would comply with settlement?
Is there a fear of violence or intimidation?
Is there any scope for compromise? Is client prepared to make concessions?
Is there information that one party could provide to improve understanding?
Could some aspects be resolved now?
Do parties share interests?
Is mediator likely to enhance negotiations? Have the parties tried themselves?
Does the client want to participate directly?
Has communication been a source of conflict?
Any non-legal interests of client?
Is a quick resolution in client’s interests? Does either party have an interest in delay?
Is continuation of dispute affecting commercial or reputational interests?
Would an apology help?
Is privacy / confidentiality important?
©MNoonan2012
Mediation Agreement
• Confidentiality
• Payment of the mediator
• Exclusion of liability and indemnity
©MNoonan2012
Compulsory mediation
See NSW Civil Procedure Act 2005 Part 4
and Uniform Civil Procedure Rules 2005
Parties must participate in “good faith” s. 27
Court can refer without consent. S.26
Note cost consideration: Court annexed
mediation-no charge for mediator or room.
Private-have to find and pay for both.
©MNoonan2012
Mediation Schemes
Great variety, many courts, tribunals.
Law Society Mediation Program. See
Mediation and Evaluation Information Kit
(2007) on website….mediators are
qualified solicitors who meet stringent
selection criteria and undergo advanced
mediation training.
Australian Mediation
Association…www.ama.asn.au
©MNoonan2012
Mediator Selection
What style of mediation?
Sole mediator? More than one?
Court connected mediator or private?
Level of influence of mediator? Settlement,
Facilitative or Transformative model?
Expert advisory panel?
Wise counsel model?
Tradition based model?
With or without caucuses?
©MNoonan2012
Qualities in a Mediator
Open minded
Persistent
Good listening skills
Sense of humour
Honesty, integrity
Patience
Flexible
Creative
Able to work with highly
charged emotions
Qualified….-in what?
Respected
Perceptive
Attentive to detail
Respectful
Friendly
Intelligent
Even tempered
Organised
Articulate
Gender and race
©MNoonan2012
Most suitable type of mediator
Private (legal or other training?)
Solicitor, barrister
Former judge
Specialist-family/relationships, psychologist,
engineer, building/construction, franchise,
accounting, IP, Biotech, Mining, trade,
banking.
©MNoonan2012
Stages of Mediation
Opening statements-problem, facts and issues 30
minutes.
Identification of issues and setting agenda
Exploration and discussion of issues
Private sessions (and discussion with lawyer?)
Generation of options or offers
Evalutation of options or offers
Negotiations
Finalising agreement (assisted by lawyer?)
©MNoonan2012
The private sessions
• Usually mediator conducts separate sessions with each
party to ascertain points at issue and respective
positions
• Mediator reflects on those sessions and formulates
possible solutions
• Mediator explains likely outcomes if dispute continues (if
adequate skills to do latter) to both parties separately
• Mediator presents possible solutions at joint session.
(Sometimes further separate sessions beforehand).
• If settlement reached, mediator formulates basic
agreement terms for lawyer to translate into agreement
or, if a lawyer, drafts settlement agreement.
©MNoonan2012
Mediation and Confidentiality
Is there an Agreement covering
confidentiality?
Who is bound? Parties, mediator, lawyers,
others.
What Information is covered?-admissions,
offers, facts, documents, notes,
agreements
Limits of confidentiality, enforcing
confidentiality-Use of information for other
purposes including legal proceedings.
©MNoonan2012
Role of Lawyer in Mediation
• Research problem and issues, obtain information,
assemble and prepare.
• May or may not be present.
• May speak for client or coach client as to opening
statement, participation, process.
• May ask questions on behalf of client
• May generate options.
• May advise in relation to offers
• May negotiate on behalf of client
• May assist with documentation of settlement
• Extent may depend on whether client can afford it
©MNoonan2012
Expert Determination
• Sometimes resolution of a single issue at base
of dispute can resolve dispute
• E.g. specification/qualities/existence of a
substance or state of affairs, a
legal/accounting/scientific opinion on a particular
matter
• Parties nominate an expert or panel to give
opinion on that single matter
• Can agree on “papers only” or independent
tests, as appropriate.
©MNoonan2012
Expert determination and IT
Examples:
Agreed a measurement system, which as contract
goes on, no longer exists, works or suits and
real time processing becomes impossible.
Expert could identify problems and an
appropriate replacement.
If problem extends beyond expertise of expert,
mediation may be better with limited expert
determination on technical issues only.
©MNoonan2012
Expert determination in court system
Judges may refer questions to assessors or
special referees.
For example, in a building dispute, questions
for the architect or engineer.
Family court-family report after interviews of
family members
©MNoonan2012
ARBITRATION
• Parties agree to resolve disputes by
arbitration in accordance with nominated
Rules.
• Parties appoint Arbitrator or panel
• Arbitration conducted
• Decision made by Arbitrator
• Binding on the parties
• Enforceable in approx 142 countries
©MNoonan2012
©MNoonan2009
Arbitration process
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•
•
•
•
•
•
•
Can be similar to a court process
Can be informal
Can be remote
Can be on “papers” only, i.e. written materials and no
oral hearing
Parties can choose an arbitrator with expertise in their
business
Usual to choose 1 or 3 arbitrators so no deadlock
possible
Usually confidential, so limited precedent bank to consult
/ research.
Important elements are a process, rules defining how
that works, and a timetable to keep it moving along.
©MNoonan2012
Framework for Domestic Arbitration
States have Commercial Arbitration Acts-largely
uniform and regulate domestic arbitrations
Supreme Court has power of overall supervision.
Public policy prevents parties from agreeing to
oust jurisdiction courts. Scott v Avery clauses
seek to get around that by making arbitration a
condition precedent to legal proceedings. So,
not ousting, just delaying or not primary method.
However, Commercial Arbitration legislation
prohibits any clause trying to make it a condition
precedent.
©MNoonan2012
Powers of the Court
Under s. 53 Commercial Arbitration Act 1984
(NSW) and Supreme Court Rules court
has power to refer a matter to arbitration
on application of a party or its own motion.
©MNoonan2012
Domestic Arbitration
Subject to legislation and court review on
points of law or manifest errors of fact.
This can result in dispute ending up in
court anyway, with even more time and
cost than if one had gone there straight
away.
Consider appropriateness and type of
arbitration.
©MNoonan2012
Qantas Airways Ltd v. Dillingham Corporation
(1985) 4 NSWLR113,122
Construction of Qantas Centre. Q brought legal proceedings
against D claiming that because D found the building
contract onerous, it was attempting to force Q to renegotiate
by wrongful means such as delay, inducing labour unrest,
conspiracy to hinder work and fraudulently misrepresenting
that design problems made work impracticable. D applied
for a court order to send it for arbitration by an architect and
a builder or by an arbitrator mutually appointed as set out in
the Scott v. Avery clause in the contract.
The court agreed with D and stayed proceedings effectively
giving effect to arbitration clause and noted that “It is now
more fully appreciated that used to be the case that
arbitration is an important and useful tool in dispute
resolution. The former judicial hostility to arbitration needs to
be discarded and a hospitable climate for arbitral resolution
of disputes created”
©MNoonan2012
Advantages of arbitration
•
•
•
•
•
Neutrality
Flexibility
Efficiency
Confidentiality
Enforceability
©MNoonan2012
Arbitration Clause
ACICA recommends:
“Any dispute, controversy or claim arising out of,
relating to or in connection with this contract,
including any question regarding its existence,
validity or termination, shall be resolved by
arbitration in accordance with the ACICA
arbitration rules. The seat of arbitration shall be
(location). The language of the arbitration shall be
(language). The number of arbitrators shall be
(1,3 or Article 8 of rules).”
Note also need for choice of law clause.
©MNoonan2012
Arbitration Rules
Arbitrations are conducted in accordance
with rules chosen.
See for example ACICA Arbitration rules at
www.acica.org.au. Selections follow.
Procedural as with civil/criminal procedure
court system rules.
For other rules, see appropriate organisation
©MNoonan2012
Attitude of our courts
Mainly support
Care must be taken when drafting to avoid
multi-party, multi-contract and multi-venue
disputes.
If arbitration clause too narrow, it may limit
range of disputes that can be settled by
arbitration
©MNoonan2012